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Contracts Bar Outline

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CONTRACTS OUTLINE

1. APPLICABLE LAW (Common Law v. Article 2 of the UCC) a. Real estate - Common law b. Services contract - Common law c. Sale of (tangible) goods - UCC d. Mixed deal (one payment) - more important part of K rules (All or nothing law application) e. Mixed deal (divided payment) - apply UCC to sale of goods and common law to rest

2. FORMATION OF CONTRACT a. OFFER i. For a valid offer there must be:

1. Manifestation of intention to contract

2. Certainty and Definiteness of Terms

3. Communication to an intended offeree ii. Manifestation of Intention to Contract - Words or conduct that show intent to commit

1. Test - Would a reasonable person in the position of the offeree believe that his assent creates a contract. (The real intent of the parties is irrelevant) a. May look to the parties prior relationships or the custom in the industry

2. Advertisement - An advertisement is not an offer a. Exceptions i. Offer for reward ii. Can be offer if specific as to quantity and expressly indicates who can accept iii. Certainty and Definiteness of Terms - Offer is not required to contain all material terms however the terms must be certain and definite.

1. Vague or ambiguous material terms NOT an offer under either common law or UCC [Appropriate, fair, reasonable]

2. All contracts must indentify the Offeree

3. Missing Price term in contract a. Sale of real estate - Price and Description required b. Sale of goods (UCC) - NO price requirement (Court will set based on FMV) i. UCC Note - time for performance may be supplied by the court.

4. Output contracts (Requirements Contracts) - Exists where the seller contracts to sell ALL the goods it produces to buyer [All, only, exclusively, solely]
a. Valid without specific quantity. (Quantity must be set in good faith) b. Can increase quantity if not unreasonably disproportionate (must be in line with prior demands) c. Requirements Contracts - When buyer agrees to buy ALL good needed from seller.

5. Employment Contracts - The duration of employment must be stated. iv. Termination of the Offer (REVOCATION)

1. Revocation - Unambiguous Words or Conduct of Offeror revoking the offer. a. Note - Multiple offers by one offeror is NOT revocation 1

b. When does revocation of an Offer become Effective i. Upon notice to the offeree ii. Revocation sent through "the mail" is not effective until received iii. Offer cannot be revoked after is has been accepted

2. Lapse of Time - Either time stated in offer or reasonable time after offer.

3. Publication - If offer was made in a publication, revocation may be made in a compatible means of publication. (Revocation effective when published)

4. By Operation of LAW a. Death or Insanity - of a Party Prior to Acceptance b. Destruction - Destruction of the proposed contracts subject matter v. Offers that CANNOT be revoked

1. Option Contract a. Promise NOT to revoke AND b. Supported by additional consideration i. General Contractor - Whenever a general contractor relies on bid from sub-contractors to submit a bid, an option K is formed.

2. UCC "Firm Offer Rule" - offer cannot be revoked for up to 3 months if: a. Signed, written promise b. by a Merchant c. To keep the offer open d. Is Valid without consideration. i. Can be held open for longer than 3 months if stated in the contract. ii. Merchant - deals in goods of the kind or has specialized knowledge of the business practices involved.

3. Detrimental Reliance - Reliance that is: a. Reasonably foreseeable and b. Detrimental

4. Start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance a. Unilateral offer - Expressly requires performance as the only means of acceptance [offer, acceptance only by act]
b. Mere preparation is not sufficient. (i.e. Must start to perform) vi. REJECTION by the Offeree

1. Effective when RECEIVED a. Once an offer has been rejected, the original offer is NO longer valid unless the offeror revives the offer by later statements.

2. Counteroffer a. Always Rejects the original offer and creates a New Offer b. Distinguish from bargaining (usually a question?)

3. Conditional Acceptance a. Always terminates the offer and creates a counteroffer b. [if, only if, provided, so long as, but, on condition that]

4. Mirror Image Rule (Common Law Additional Terms) a. Only applies to common law contracts, not sale of goods (UCC) b. Additional terms are a counteroffer 2

5. Additional Terms (UCC) a. If the new terms are not a condition of acceptance, then it is a "seasonable expression of acceptance" b. New term part of contract?
i. Both merchants - additional terms are part of K

1. Unless materially changes the offer, OR

2. the offeror objects to the change ii. One not a merchant - additional term is proposal b. ACCEPTANCE - Manifestation of assent to the terms of an offer communicated to the offeror. i. Methods of Accepting an Offer

1. Express communication

2. Conduct - Later conduct by the parties implying a contract exists notwithstanding an improper response to an offer by the oferee. a. Ex. Lease fact pattern. Offeree signs K and returns to Offeror with an additional clause that he will accept only if disputes are mediated. Upon receiving the signed contract with the mediation clause, the offeror gives the keys to the apt.) b. Common Law - acceptance of K with additional terms included. c. Under UCC - New terms form of new K

3. Offeree FULLY performs - Valid Acceptance a. Only question is whether notice of performance is required i. Look to what notice the offer required, or ii. Whether the offeree has reason to believe that offeror will not learn of acceptance

4. Offeree STARTS to perform a. Start of performance is acceptance treated as an implied promise to perform and so there is a bilateral contract b. Start of performance is NOT acceptance to enter into a unilateral contract i. Most contracts are Bilateral. Contracts are Unilateral in 2 situations, (1) offers to the public (rewards) or (2) offers that clearly indicate performance is the ONLY manner of acceptance. ii. Unilateral contracts are only satisfied by FULL performance.

5. Offeree PROMISES to perform a. Most offers can be accepted by a promise to perform b. Exception: if offer requires performance for acceptance, then completion of performance is required

6. Mail Box Rule a. Acceptance is generally effective when mailed b. All other communications are effective upon RECEIPT (not knowledge, just physical possession) c. Note - If offeree mails a rejection before also mailing an acceptance, then neither is effective until received i. If offeree sends an acceptance before also mailing a rejection, the mailbox rule applies to the acceptance unless the oferror receives the rejection first and detrimentally relies on it. d. Options - Mailbox rule CANNOT be used to meet an option deadline. e. Waiver - Offer can stipulate that acceptance is not effective until received. 3

i. Note - Acceptance by unauthorized means is still effective if it is received by the offeror while the offer is still in existence.

7. UCC - Seller of goods sends the wrong goods a. General rule - Acceptance and Breach (NOT a counteroffer) b. Accommodation Exception - Counteroffer and no Breach i. Ex. "Out of red cars, hope blue cars will work"

8. Who can Accept - A person who knows about the offer and who is the person to whom the offer was made a. Offers CANNOT be assigned b. Options CAN be assigned i. Freely assignable unless otherwise stated c. Rewards, requires knowing of the offer

3. Contract will be UNENFORCEABLE if: a. Lack of consideration OR a consideration substitute b. Lack of capacity c. Statute of Frauds d. Illegal Subject Matter / Purpose e. Public policy f. Misrepresentation / Non disclosure g. Duress h. Unconscionability i. Ambiguity j. Mistake as to the material facts k. Lack of CONSIDERATION (or Consideration Substitute) i. Consideration - Bargained for exchange between the parties of legal value.

1. Bargained for exchange - Parties must exchange something.

2. Legal value - More than sham consideration (peppercorn) a. Courts require a party incur a legal detriment to satisfy legal value ii. Forms of Consideration

1. Performance or promise to perform.

2. Forbearance or promise to forbear - If it benefits the promisor iii. Possible Issues

1. Past or Moral Consideration - a promise for something already done does not satisfy the bargain element. a. Exception - expressly requested by the promisor and expectation of payment by the promisee (i.e. save my child)

2. Part payment as consideration for RELEASE (promise to forgive debt) a. Key is whether debt is "due and disputed." If the debt is NOT yet due or disputed (i.e. paying before the payment is due or paying part of a disputed amount) is Valid consideration.

3. Gifts - No bargain involved

4. Illusory promise - Not valid "promise to sell me all the cars I want"

5. Forbearance to Sue - Valid if in good faith believed the claim was valid.

6. Pre-Existing Contractual or Statutory Duty a. Common law - New consideration is required for K modification i. Addition or Change in performance by person under the duty 4

ii. Unforeseen circumstances so severe as to excuse performance iii. Pre-existing duty is owed to a 3rd party instead of the promisor. iv. There is an honest dispute as to the duty b. UCC - Does not have a pre-existing duty rule i. New consideration is not required to modify sale of goods ii. Good faith is the test for changes in an existing sale of goods K iv. Consideration Substitutes - A promise is legally enforceable even though there is no consideration if there is one of the following substitutes

1. Seal - NOT considered a substitute (Common WRONG answer on MBE)

2. Legal Obligation Barred by Law - A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration (i.e. SOL)

3. Promissory Estoppel (detrimental reliance) a. Promise b. Reliance that is reasonable, detrimental, and foreseeable c. Enforcement necessary to avoid injustice (As justice requires) i. MBE - Valid contract is stronger than promissory estoppel. l. Lack of CAPACITY (Promisor's) i. Types:

1. Infancy - under 18

2. Incompetents - lacks mental ability to understand agreement

3. Intoxicated persons (if other party has reason to know) ii. Consequences

1. Voidable - Right to disaffirm by person without capacity

2. Ratification - Implied affirmation by retaining benefits after gaining capacity

3. Necessities - Quasi-contract Liability for necessities a. Legally obligated to pay for food, clothing, medical care or shelter b. Not bound by the amount in the K but must pay a reasonable amount. m. STATUTE OF FRAUDS i. Policy - to prevent fraudulent claims by requiring special proof of either performance or a signed writing by the person who is asserting there was no such agreement. ii. Contracts within the SOF (MY LEGS)

1. Marriages - Promise in consideration of marriage (i.e. if you marry him...) a. Not merely a promise to marry but rather a promise to do something or refrain from doing something if they marry

2. Year -Contract not capable of being performed within a year from the date of the Agreement, NOT the date of performance (i.e., more than one year) a. Specific time, more than a year from date of contract - SOF applies b. Task (no time) - always possible to complete within a year - doesn't apply c. Life - can end at any moment - SOF doesn't apply

3. Land - Transfers of Interest in Real Estate. Exception: leases of a year or less

4. Executor - Promise by executor to "answer personally" the debts of the decedent.

5. Goods - $500 or more (UCC)

6. Surety - Promises to Answer for Debts of Another (Suretyship) a. Not merely a promise to pay, but rather a promise to pay if someone else does not. Look for guarantee (will pay "if P did not pay") 5

iii. How to Satisfy the SOF

1. PERFORMANCE a. Performance of a Service Contracts i. Full performance by either party satisfies ii. Part performance of a services contract does NOT satisfy b. Sale of Goods Contracts (UCC) i. Sellers Part Performance of Ordinary Goods - Part performance of a K for the sale of goods satisfies SOF, but ONLY to the extent of the part performance

1. i.e. delivered 5 of 100 pencils. Only satisfied as to 5.

2. Note - Simply making ordinary goods and not delivering them does NOT satisfy the SOF. ii. Sellers Part Performance of Specially Manufactured Goods- SOF is satisfied as long as seller makes a "substantial beginning" iii. Buyers Part Performance

1. Multiple Items - SOF is satisfied up to the percentage of goods paid for. (i.e. contract to buy 10 cows for $1000. Paid $600. SOF satisfied for the purchase of 6 cows)

2. Single Item - does NOT satisfy SOF. (i.e. contract to buy 1 cow for $1000. Paid $600. SOF is not satisfied) c. Performance and transfers of interests of real estate i. Part performance by buyer of real estate can satisfy the SOF if:

1. Takes possession, AND either

2. Pays full or partial payment, OR

3. Makes Improvements ii. Note - Full payment alone does not satisfy SOF

2. WRITING a. Writing Requirements i. The identity of the parties ii. Identification of the Contracts Subject Matter iii. Terms and Conditions of the agreement iv. Consideration v. The signature of the party to be bound

1. i.e. It must be signed by the person who is asserting the SOF defense

2. *UCC 10 Day Merchant Exception - Both parties must be merchants and the person who receives a signed writing with a quantity term fails to respond within 10 days of receipt vi. *UCC - Writing must contain the quantity term b. Form - The writing may be in several pieces and does not even need to be on paper. The key is that it is in writing. (Can be several correspondences)

3. Judicial Admission - If a D asserting a SOF defense admits in a pleading or testimony that he had entered into an agreement with the P, then there is no SOF defense (no need for fraudulent claim protection) 6

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